Jan
23
ETL - Ron Conway & Mike Maples
January 23, 2008 |
Today’s speakers were absolutely phenomenal. I talked with some of the head people at ETL, and they personally agree that it was one of the top five presentations in the history of the program. Both Ron Conway and Mike Maples are angel investors and have somewhat different focuses in terms of what they invest in and why. I’ll dive more into their backgrounds below, but because this talk was so insightful, I highly recommend listening to it as well as reading this post.
Ron Conway Background
Mr. Conway is the founder and managing partner of Angel Investors LP. Throughout his extensive history in the Valley he has invested in over 500 startups including Google and Paypal, and more recently, Digg, Twitter, PBWiki, and Wikia. He has also served on many advisory boards including Facebook, Photobucket, RockYou, StumbleUpon, SendMail, Ask Jeeves, Napster, Plaxo, and SNOCAP. Not only does he work in the for profit realm, but he is also involved in numerous philanthropic causes and was #6 in Forbes Magazine’s Midas list of top “dealmakers” in 2006.
Mike Maples Background
Mr. Maples is the founder and managing partner of Maples Investments. He also co-founded Motive, Inc., the world’s leading broadband software company in 1997, and played many key roles in its growth from startup through sales of $100 million. Before starting Motive, he was responsible for worldwide product marketing at Tivoli Systems and did business development and product marketing at Silicon Graphics. In high school, Mike started his technology career by starting a software company that developed educational products and games. Finally, he holds an engineering degree from Stanford and an MBA from Harvard Business School.
Question One: Why should a startup look for an Angel?
- Money - Self explanatory.
- Contacts - Knowing people is advantageous, especially when certain skills are needed.
- Perspective - Someone who knows the process and what it takes to be successful prevents a startup from running around looking like a bunch of chickens with their head chopped off.
- Broader Range of Exit Options - Many times Angels know different ways and when the time is best for getting acquired, going public, or another exit option.
Question Two: What’s a good Angel?
A good angel is one that adds value to the team and is accessible. Mr. Conway pointed out that if your startup is focusing on an area that he is particularly passionate about, then there is a better chance that he will invest in you and be valuable to your organization. The other important characteristic is accessibility, especially when seeking feedback. If your startup has a bunch of questions, it is important that your Angel makes time to answer them and provide the perspective somewhat necessary for success.
Question Three: What are you looking for in opportunities?
When it comes to analyzing an opportunity, Angels first look within to judge whether or not they can take on an opportunity they are presented with. Mr. Maples said it best when he suggested that the idea is to develop an Ocean’s 11 team both internally and of Angel Investors. Angels sometimes have to work together to raise X number of dollars, and the average angel round raises between $500,000 and $1,000,000. Sometimes, though, they will work together to raise upwards $3,000,000. One of the biggest problems they see, though, is that many entrepreneurs come to them with just an idea. This is a problem because the investors would rather the entrepreneur come after having run experiments and tests first, because only the customer matters in terms of whether or not an idea is good. It also shows a lack of conviction on behalf of the entrepreneur.
Question Four: What do you do for the company?
Obviously, they write the check to get the startup on their way. They also use their contacts and perspective to fulfill the needs of the company by finding the right people with the right skills. Mr. Maples came up with another excellent analogy along the lines of a startup is like a racecar running full throttle and heading into town. The goal of the angel is to help turn all of the lights green at the right time instead of having the startup coming to a complete stop at every slight hiccup - a red light. Essentially, speed is everything to a startup.
Question Five: Help us understand what it means to have you involved in different ventures?
Essentially, the question is asking about the relationship between the angel and the startup. For example, an inexperienced CEO is gauged for investing purposes. Mr. Conway will only take on a limited number of inexperienced CEO’s so as not to occupy all of his time with their inevitable questions. The most important point he made though, is that as an angel, you want to avoid codependency at all costs. The role of an angel should instead be a multiplier. As an example, instead of trying to change the trajectory/mission/idea of a startup, which creates the codependency, the angel should be like a cheerleader that supports the trajectory/mission/idea from the get-go and instead multiplies their ability to accomplish their objectives.
Question Six: How do you build a portfolio of investors?
It’s a multistep process and gives you multiple chances for interactions, thus giving you the opportunity to effectively gauge whether or not an angel is a good fit for your organization. In the case of Ron Conway, he is passionate about issues such as monetizing video, improving search, better advertising while searching, and the gaming segment. If your startup is in those areas, he might be a key player in your team. The next step is for the angel to read your executive summary and see if they like your business idea. If so, then he will talk to the CEO/founder/president on the phone and proceed with a conversation/interview. If that goes well, then a meeting will be set up in person to further determine whether or not the angel will invest and is a good fit.
Question Seven: What’s the attrition rate for an angel?
- See 5 new deals a day.
- Get rid of 2 1/2-3 right away.
- Evaluate for a great executive summary and elevator pitch. If good, then the company will be called.
- Check the backdoors about the entrepreneur.
- If good from there, then schedule a meeting.
- Invest in one company a month.
- 1/3 of those investments go out of business, 1/3 return the money back, and 1/3 return 3-10 times the money back.
- 1 hit per investment cycle pays for the whole portfolio.
- If you are going to fail, fail gracefully.
Question Eight: How long of a runway (time-wise) do you give a company?
One of the favorite aspects of startups that both Mr. Conway and Mr. Maples look for is a low burn rate. The reason for this is that companies can try a bunch of different things to try and find something that works and makes money. One hard rule that Mr. Conway pointed out was that $1,000,000 should last over a year. In the first year, the team should be comprised of only 2-3 people, and within the next year must have between 4-6 people. Any larger and there becomes management issues and larger internal costs. Another key is to have a customer development strategy along with product development milestones, for the simple reason of ensuring cashflow. Finally, don’t scale until you know the product and business works.
Question Nine: How do you transition from Angel to VC?
In Mr. Conway’s case, he sends an exclusive email to his VC friends about who is going to be looking for funding in the next 30 days, and another about those who might be looking in 60-90 days. If the entrepreneur is great at meeting milestones, proves something dramatic, has 60 days worth of cash, that in itself will send a strong signal to VC’s. If the company can’t stand on its own, there really isn’t much an Angel can do.
Question Ten: Can the Silicon Valley ecosystem be replicated?
In short, no. Even though Silicon Valley is expensive, it is much cheaper compared to New York or Los Angeles. Mr. Conway added that to give investments in different locations an equal chance, he would spend the same amount of money on 3-4 investments in Silicon Valley as only a couple in New York. At most, in Silicon Valley a CEO should be paid $100,000 while in New York or Los Angeles they expect $300,000. In fact, you could draw a 25 mile radius around Stanford University and that is where you would end up receiving 75% of your returns.
Question Eleven: Can there be too much money chasing deals?
Again, the answer in short is no. The more choices an entrepreneur has, more entrepreneurs will end up coming to this ecosystem. Some companies do end up getting overfunded, and this is toxic. The reason being that it allows the company to pursue losing strategies for too long. Hyper frugal companies are more successful in Silicon Valley, and I would argue also in general. If you’re an aspiring entrepreneur looking for funding, Mr. Conway says you should get on a plane and come here. Mark Zuckerberg, founder of Facebook, recognized the ecosystem here and relocated to Silicon Valley.
Question Twelve: What would you recommend to create an entrepreneurial environment?
Instead of answering this question, Mr. Conway pointed out how one couldn’t easily be replicated. He pointed out that hte European ecosystem is tiny, as with all others around the country. He essentially argues that the very best entrepreneurs make sacrifices to come here to Silicon Valley. Because every advantage counts, especially in a startup, Mr Maples points out that other entrepreneurial environments will have some reds and yellows while Silicon Valley will have mostly greens.
Question Thirteen: How can we become Angel Investors?
- Have/build a rolodex of engineering help, business development help, and new recruiters.
- Invest in things that value expertise.
- Invest to add value.
Question Fourteen: What kind of advice do you have for young entrepreneurs?
- Satisfy a need you yourself experience.
- Go find 2-3 other cofounders with diverse skills.
- No excuse in life not to be passionate about something.
Question Fifteen: What will the world be like in the next 3-4 years?
A couple of prominent individuals in Silicon Valley have been talking about how search will radically change as it learns to process natural language instead of being keyword based. Another observation that I don’t necessary agree with is Mr. Conway’s comment that half of future websites will be video only. A final observation is that a lot of cool things are bound to happen as storage, processing, and broadband costs approach zero.
Final Questions, Comments, and Lessons
- Finding Passion. Passion has always been a part of entrepreneurship, and both Mr. Conway and Mr. Maples are passionate about helping other entrepreneurs out.
- Making a Decision. If it is a decision that is pretty much even on both sides, Mr. Maples suggests that you flip a coin and select a side. If ends up tails, for example, and you wanted heads, simply flip the coin over and do what that side suggested because that’s the decision you wanted to make anyway.
- Be Precise. When developing your business idea, focus on all aspects of the issue, both large and small. Be precise in your plan of attack and execute, execute, execute.
- Team and Idea Balance. All investors look more towards a team than the idea behind the team. The best idea in the world won’t succeed without a great team. A good ratio is 80% for the team, 20% for the idea, and what could also be considered equally important is a great market.